A G U I D E T O G L O B A L TA X R E F O R MA
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A G U I D E T O G L O B A L TA X R E F O R M
M A R C H 2 0 1 6
For more information contact:
Olivia BuckleyCommunications DirectorDirect: +353 1 663 1706Email: [email protected]
Cora O’BrienPolicy DirectorDirect: +353 1 663 1719Email: [email protected]
Aidan LuceySenior Tax Policy ManagerDirect: +353 1 663 1709Email: [email protected]
A G U I D E T O G L O B A L T A X R E F O R M2
3A G U I D E T O G L O B A L T A X R E F O R M
CONTENTS
The Global Tax Reform Agenda – The Journey So Far 4
The Big Players in Global Tax Reform 8
The Global Tax Reform Journey - A Timeline 14
BEPS Implementation Across The World 16
Stats And Facts On Global Tax 24
The OECD and BEPS 27
EU - The Tax Reform Agenda 36
US - The Tax Reform Agenda 50
Tax Data & Transparency 57
Who Is Impacted By Global Tax Reform Proposals? 67
Some Key Terms 78
A G U I D E T O G L O B A L T A X R E F O R M4
THE GLOBAL TAX REFORM AGENDA – THE JOURNEY SO FAR
“The corporate tax systems in
place today were conceived to a large extent in the aftermath of World War I. At that time, multinational enterprises were mostly industrial companies, selling tangible products.
”EUROPEAN COMMISSION
Political momentum on corporation tax arises out of global crash
• The heightened focus on the tax affairs of multinational companies came amidst the global financial crisis.
• There had long been work on tax reform at OECD and EU level but this was given fresh political impetus with the global financial crash.
• It was recognised that the existing international tax rules were designed 80 years ago and that the international tax framework had not kept pace with global and digitally driven businesses.
DID YOU KNOW?
“Today, some 50,000
multinational enterprises and
their 450,000 a�liates employ over 200 million
people throughout the world”
INTERNATIONAL LABOUR ORGANIZATION
5A G U I D E T O G L O B A L T A X R E F O R M
THE CHANGING NATURE OF GLOBAL BUSINESS
• Global expansion
• Mobile capital
• Digital era and the rise of internationally traded services
• Role of technology
• Importance of intellectual property
• Increased focus on product innovation
• Big Data
• Supply chains that have developed are truly international
• Regional headquarters
• Inventories and warehouses in local markets
• Centralisation of key functions (e.g. procurement, intellectual property, financing)
• Mobile workers
• Online sales
• Shared service centres
• Contract services
• Individual countries generally design a tax regime that is focused on their own economic and social objectives
• Tax is levied county by country
• This can often result in double taxation but also gaps and mismatches between tax systems
• In trying to keep up with business changes, tax legislation has become very complex, sometimes resulting in unintended consequences
GLOBAL TRENDS which have
impacted the way companies do
business
How BUSINESS MODELS have
changed to keep pace with these
trends
CHALLENGES in global tax
to date
“Today’s economic environment is
characterised by a high degree of economic integration across borders (global value chains), major importance of intellectual property and other intangible assets as value drivers, and by major developments in information and communication technologies
”PASCAL SAINT-AMANS DIRECTOR, OECD CENTRE FOR TAX POLICY AND ADMINISTRATION
THE OVERALL OBJECTIVES OF TAX REFORM
A G U I D E T O G L O B A L T A X R E F O R M6
The key objectives include:
• Greater alignment of taxable profits and the location of economic substance
• Increasing the transparency of corporates’ tax a�airs through Country-by-Country Reporting (“CbCR”) and the automatic exchange of information between tax authorities
• Re-design of transfer pricing principles which will reform the way in which profits are allocated within corporate groups
• Re-design of preferential IP regimes to ensure that there is a ‘nexus’ between the qualifying income and the location of the underlying R&D activities
• Addressing tax relief on financing and interest payments
ONES TO WATCH - KEY DATES
7A G U I D E T O G L O B A L T A X R E F O R M
Public Country-by-Country Reporting: The European Commission is currently carrying out an impact assessment to determine whether Country-by-Country Reports should be made public. The results of this assessment are expected to be published in April 2016.
Anti-Tax Avoidance Package: We can expect to see developments on the Anti-Tax Avoidance Package before the end of the Dutch EU presidency in June. The last ECOFIN meetings of the Dutch presidency will be held on 25 May and 17 June 2016.
Brexit: The EU referendum on Brexit takes place on 23 June 2016. This could impact on UK and possibly EU tax policy.
Common Consolidated Corporate Tax Base (CCCTB): The European Commission is expected to publish draft proposals on a revised CCCTB in the second half of 2016.
US presidential election: The US presidential election takes place on 8 November 2016. The outcome of the election could impact the US tax reform agenda for the future.
Multilateral Instrument: The OECD multilateral instrument is expected to be finalised at the end of 2016.
Transfer Pricing Guidelines: The OECD is currently working on updated transfer pricing guidelines as part of the BEPS project. These are expected to be released in late 2016/early 2017.
EU State Aid: A number of EU State Aid decisions involving tax are expected to be announced during 2016.
A G U I D E T O G L O B A L T A X R E F O R M8
The Commission
• Pierre Moscovici (Commissioner, Economic and Financial Affairs, Taxation and Customs)
• Margrethe Vestager (Commissioner, Competition)
Directorate-General for Taxation and Customs Union (DG TAXUD)
• Stephen Quest (Director General, DG TAXUD)
• Valère Moutarlier (Director, Direct Taxation, Tax Coordination, Economic Analysis and Evaluation)
In addition, there are a number of separate working groups which work with the Commission:
• Platform for Tax Good Governance
• Joint Transfer Pricing Forum
• Expert Groups
The Council
Economic and Financial Affairs Council (ECOFIN) (Finance Ministries of Member States)
There are also a number of separate working groups which report into the Council. The main one involved in matters of tax is:
The Code of Conduct Group
The European Parliament
There are a number of separate committees which report into Parliament. Those involved in matters of tax are:
Economic and Monetary Affairs Committee (ECON)
• Roberto Gualtieri - Group of the Progressive Alliance of Socialists and Democrats (Chair)
Special Committee on Tax Rulings (TAXE2)
• Alain Lamoussoure - Group of the European People’s Party (Chair)
28 MEMBER STATES
THE BIG PLAYERS ON THE GLOBAL STAGE
EU
9A G U I D E T O G L O B A L T A X R E F O R M
Department of the Treasury
• Jacob (Jack) Lew Secretary of the Treasury
• Robert Stack Deputy Assistant Secretary (International Tax A�airs) US Department of the Treasury. He is the US representative in the BEPS negotiations and is a leading player in global tax reform
US Congress
House of Representatives Committee on Ways and MeansChair, Congressman Kevin Brady, (Rep – Texas)
US Senate Committee on Finance Chair, Senator Orrin Hatch (Rep-Utah)
The US is a significant global player in tax for a number of reasons:
• The breadth of US multinationals globally that will be impacted by new EU and OECD tax rules/legislation. US Companies account for 53 out of the world’s top 100 companies based on market capitalisation in 2014
Source: PwC Report on Global Top 100 Companies by market capitalisation, March 2015
• The US is an OECD member – its national tax regime will be impacted by the BEPS Plan.
• Any future changes to US tax policy will impact on US multinationals who have invested across the world. The debate on US tax policy is known as the ‘US Tax Reform Agenda’.
Centre for Tax Policy and Administration
• Pascal Saint-Amans Director, Centre for Tax Policy and Administration
Forum on Tax Administration
• Edward Troup Chair of FTA, and Second Permanent Secretary and Tax Assurance Commissioner at HMRC. Mr Troup will become Executive Chair HMRC with e�ect from 5 April 2016.
34MEMBER STATESOECD US
A G U I D E T O G L O B A L T A X R E F O R M1 0
“In 2014, US affiliate income in Europe rose 6% to €238 billion”- AmChams in Europe, The Case for Investing in Europe 2015
THE BIG PLAYERS - THE INTERACTION
“Aggregate US investment in Europe totalled €2 trillion in 2014 and directly supports more then 4.3 million jobs in Europe”- AmChams in Europe, The Case for Investing in Europe 2015
EU is translating BEPS actions into EU law for Member States
EU – OECD
BEPS implementation in US
OECD – US
US companies operating in the EU will be impacted by the EU’s tax reform agenda and vice-versa
US – EU
EU US
1 1A G U I D E T O G L O B A L T A X R E F O R M
THE MAJOR TAX REFORM ITEMS ON THEIR AGENDA
Action Plan for Fair and Efficient Corporate
Taxation
BEPSThere are 15 BEPS Actions*
based across three core principles:
The implementation of BEPS measures
• CCCTB
• Anti-Tax Avoidance Package
- Anti-Tax Avoidance Directive
- Amendment to Directive on Administrative Cooperation to implement Country-by-Country Reporting
- Recommendation on Tax Treaties
- Communication on External Strategy for Effective Taxation
• Automatic exchange of tax rulings and Advance Pricing Agreements (APAs)
The role of EU State Aid as it applies to taxation
Coherence of international tax systems: • Hybrid Mismatches• CFC Rules• Interest Deductions• Harmful Tax Practices
Aligning taxing rights with substance: • Tax Treaty Abuse• Permanent Establishments• Transfer Pricing (3 actions)
Improving transparency and certainty: • Measuring BEPS• Disclosure Rules• TP Documentation• Dispute resolution
Other Actions cutting across all three core principles• Digital Economy• Multi-lateral instrument
*Transfer Pricing is made up of 3 separate actions including CbCR
For example: • Country-by-Country Reporting• Innovation Box• Range of other BEPS related
issues
“The United States has a great deal at stake in the BEPS project and a strong interest in its success. Our active participation is crucial to protecting our own tax base from erosion by multinational companies, much of which occurs as a result of exploiting tax regime differences”ROBERT STACK Deputy Assistant Secretary (International Tax Affairs), US Department of the Treasury – testimony to Senate Finance Committee, 1 December 2015
US TAX REFORM AGENDA
Challenges with US corporate tax system.
“We have to fix our entire tax code—top to bottom. But if we don’t act soon to keep American businesses here at home, that challenge is going to be much harder. Foreign competitors are taking over U.S. companies at an alarming rate, and international pressures are only going to make the problem worse in the coming months”
PAUL RYAN (REP-WI), [former] House Ways and Means Committee, Press Statement, 29 July 2015
EU OECD US
“The principal objective of the BEPS Project: closing the loopholes in current tax rules that allow companies to shift their profits to low or no-tax jurisdictions, where they have little or no economic activity or value creation, rather than paying tax in the location of the activities generating those profits”
PASCAL SAINT- AMANS
“Corporate taxation in the EU needs radical reform. In the interests of growth, competitiveness and fairness, Member States need to pull together and everyone must pay their fair share”
PIERRE MOSCOVICI
A G U I D E T O G L O B A L T A X R E F O R M1 2
EUROPEAN UNION INSTITUTIONAL STRUCTURE - A FOCUS ON TAX
EUROPEAN COUNCIL(EU Heads of State)
European Parliament
ECON Committee
Special Committee on
Tax Rulings
Code of Conduct Group
(Business Taxation)
Platform for Tax Good
Governance
Joint Transfer Pricing Forum
Tax Expert Groups
EuropeanCommission
Directorate General for
Taxation and Customs Union
Directorate General for
Competition
European Council (ECOFIN)
1 3A G U I D E T O G L O B A L T A X R E F O R M
Centre for Tax Policy and Administration
COUNCILOversight and strategic direction
SECRETARIATAnalysis and proposals
COMMITTEESDiscussion and implementation
The key committee on tax
matters is the Committee on
Fiscal Affairs (“CFA”). There
are also a number of separate
tax working groups which
report into the CFA including;
• Forum on Tax Administration
• Global Forum on Transfer
Pricing
• Forum on Harmful Tax
Practices
OECD ORGANISATIONAL STRUCTURE - A FOCUS ON TAX
US CONGRESS - A FOCUS ON TAX
House Committee on Ways and Means
US Senate Committee on Finance
House of Representatives US Senate
A G U I D E T O G L O B A L T A X R E F O R M1 4
European Commission publishes Action Plan to Strengthen the Fight Against Tax Fraud and Tax Evasion
OECD publishes BEPS Action Plan which is endorsed by G20
1,400 submissions to OECD consultations on BEPS
European Parliament establishes TAXE Committee
European Commission publishes Tax Transparency Package
TAXE Committee hold hearings across the EU
December 2012
2012
2012
2013 2014
February 2015
July 2013 2014-2015
May 2015
March 2015
THE GLOBAL TAX REFORM JOURNEY - OECD
THE GLOBAL TAX REFORM JOURNEY - EU
1 5A G U I D E T O G L O B A L T A X R E F O R M
31 countries sign the OECD’s Multilateral Competent Authority Agreement for the automatic exchange of Country-by-Country Reports
OECD launch inclusive framework for BEPS implementation
European Commission launches Action Plan for Fair and Efficient CorporateTaxation
ECOFIN adopt Directive on automatic exchange of tax rulings
European Commission publishes Anti-Tax Avoidance Package
European Commission launches CCCTB consultation
2016
2015
June 2015
October 2015
December 2015 January 2016
January 2016
February 2016
OECD publishes final BEPS Package
October 2015
A G U I D E T O G L O B A L T A X R E F O R M1 6
Release of Anti-Tax Avoidance Package to ensure consistent implementation of BEPS measures in EU Member States
EU
• Development of BEPS actions• Implementation has started
- Toolkits- Inclusive Implementation framework
• Peer review - monitoring*Non OECD interested countries can participate as BEPs associates
OECD - 34 member states and associate* countries
BEPS IMPLEMENTATION ACROSS THE WORLD
1 7A G U I D E T O G L O B A L T A X R E F O R M
OECD has established an inclusive framework to broaden participation in the implementation of BEPS measures
Developing Countries (Africa, Asia):
A G U I D E T O G L O B A L T A X R E F O R M1 8
OVERVIEW OF BEPS ACTIVITY ACROSS THE WORLD
ments
• Focus has now moved towards the implementation of a
number of the OECD’s recommendations.
• Key to the success of the BEPS project will be to
ensure that there is consistent implementation across
all countries. A range of measures are being taken to
assist with the implementation process.
• The challenge for multinational companies is staying
on top of this global patchwork of change.
“The
challenge for multinational companies is staying on top of this global patchwork of change.
”
BEPS PROGRESS
Getting agreement
on BEPS
Implementationof BEPS
Across the world BEPS implementation and monitoring is underway
1. Work at the OECD
2. Work in the EU
3. Work Across National Governments
1 9A G U I D E T O G L O B A L T A X R E F O R M
1. Work at the OECD
FINISHING OUTSTANDING DETAILS ON THE POLICY WORKAlthough the final reports were issued by the OECD in October 2015, there are
still some key areas that need to be finalised. For example;
• Work is ongoing on the revised transfer pricing guidelines and it is expected
that these will be released by the OECD in the next 12 months.
• The multi-lateral instrument is currently being developed by an OECD working
group and it is expected this will be finalised by the end of 2016.
• On interest deductibility, work is ongoing to finalise the details of a group ratio
carve-out and special rules for the insurance and banking sectors.
• Other specific details remain to be concluded, particularly on PE’s and tax
treaties.
OECD TOOLKITSThe OECD has developed a number of practical toolkits to assist all countries (but
particularly developing economies) to implement BEPS Actions. These include;
• Report on tax incentives
• Tools on lack of comparables for transfer pricing purposes
• Report on indirect transfers of assets
• Toolkit on Transfer Pricing Documentation requirements
• Toolkit on Tax Treaty Negotiation
• Toolkit on Base Eroding Payments
• Toolkit on Supply Chain Restructuring and
• Toolkit on assessment of BEPS risks.
INCLUSIVE IMPLEMENTATION FRAMEWORKIn February 2016, the OECD announced plans to establish an inclusive
framework that would broaden participation in the OECD/G20 BEPS Project.
The new forum will allow for all interested countries to participate as ‘BEPS
Associates’ in an extension of the OECD’s Committee on Fiscal Affairs.
The framework’s mandate will focus on reviewing implementation of the four
BEPS minimum standards, in the areas of;
1. Harmful tax practices
2. Tax treaty abuse
3. Country-by-Country Reporting
4. Improvements in cross-border tax dispute resolution
A G U I D E T O G L O B A L T A X R E F O R M2 0
MONITORING BY PEER REVIEWThe OECD and member countries have agreed to monitor the
implementation of the BEPS measures. This will involve some form of peer
review which will be adapted to the different BEPS Actions. For example, a
peer-based review mechanism has been identified in respect of Action 14
to monitor how countries deal with dispute resolutions and feedback will be
provided regularly to the OECD’s Committee on Fiscal Affairs.
ONGOING REVIEWThe OECD and G20 countries have agreed to continue to work together on
BEPS until 2020. In the interim, the implementation of the BEPS actions will
be monitored by all stakeholders with some actions being subject to specific
review by 2020. For example;
• A supplementary report reflecting the outcome of continued work on the
overall taxation of the digital economy will be prepared and published.
• The three-tier transfer pricing documentation approach will be reassessed.
2. Work in the EU on BEPS
While the BEPS actions can be implemented unilaterally by countries, the
EU has taken active steps to ensure that there is a coordinated approach to
implementation in EU Member States.
In January 2016, it published its Anti-Tax Avoidance Package (ATAP) which
provides draft legislative proposals for the introduction of key BEPS measures:
The measures in the ATAP, together with a range of other initiatives that
the EU has taken across the BEPS actions and beyond, constitute a
comprehensive tax reform programme for businesses operating in the EU.
Page 22 provides a detailed summary of how each of the OECD BEPS Actions
has been implemented by the EU.
• Deductibility of interest
• Controlled foreign company (CFC) rules
• Hybrid mismatches
• Country-by-Country Reporting
• Treaty abuse
• Permanent Establishments
2 1A G U I D E T O G L O B A L T A X R E F O R M
3. BEPS Work Across National Governments
Governments globally are also in the process of consultation with local stakeholders on
how best to implement BEPS and EU measures into their own national law.
EU Member States that implement BEPS reforms ahead of agreement on EU law (including the ATAP), will be required to review their legislation subsequently and ensure it is in compliance with the EU position.
UK’s HM Treasury has held a number of public consultations on the OECD proposals including those on interest deductibility, hybrid mismatches and their IP box.
Ireland has introduced CbCR legislation and an OECD compliant innovation box regime, following a lengthy period of consultation.
The Australian Tax Office has recently launched a consultation on the implementation of new transfer pricing rules. Australia is also introducing it’s own multi-national anti avoidance law (MAAL).
In the US, the Department of the Treasury is currently holding a consultation on draft Country-by-Country Reporting regulations.
In Mexico, legislation has been enacted to prevent treaty abuse. Mexico has also followed the OECD’s three-tier approach to transfer pricing documentation.
Australia and Germany have signed one of the first post-BEPs bilateral tax treaties which contains BEPS measures.
!
EXAMPLES
A G U I D E T O G L O B A L T A X R E F O R M2 2
How the EU is implementing BEPS
Action 5: Harmful Tax Practices
Patent Boxes: The Code of Conduct Group will be monitoring Member States to ensure existing boxes are changed to meet modified nexus approach
Rulings/APAs: DAC 3 has been adopted into EU law. Once enacted by Member States it will provide for the automatic exchange of rulings (rather than spontaneous) and APAs. The Code of Conduct Group is developing guidelines on the conditions for the issue of tax rulings by Member States.
Action 12: Disclosure of Aggressive Tax Planning
Action 8-10: Transfer Pricing
JTPF working on EU approach to implementing the BEPS transfer pricing actions
Action 13: Transfer Pricing Documentation
JTPF will monitor the EU Transfer Pricing Documentation (“EU-TPD”) to take into
account the conclusions of BEPS Project
Action 2: Hybrid Mismatch Arrangements
Action 3: Controlled Foreign Companies (CFCs)
Action 4: Interest Limitation
PROPOSED ANTI-TAX AVOIDANCE DIRECTIVE
CODE OF CONDUCT GROUP (BUSINESS TAXATION)
Action 13: Country-by-Country Reporting
It proposed to extend DAC to facilitate the automatic exchange of Country-by-Country
Reports between Member States
PROPOSED DIRECTIVE ON COUNTRY-BY-COUNTRY
REPORTING
JOINT TRANSFER PRICING FORUM (“JTPF”)
ATA
P
2 3A G U I D E T O G L O B A L T A X R E F O R M
Action 11: Measuring and monitoring BEPS
Separate EU study underway about impact of aggressive tax planning on EU Member States
Action 14: Dispute Resolution
Proposals for improved EU dispute resolution due in 2016 – public consultation underway.
Impact assessment on public CbCR due in April 2016.
Actions 6 + 7: Treaty Abuse/PE
Include a Principal Purpose Test (rather than a Limitation of Benefits clause)
Amend the definition of Permanent Establishment.
EU STUDY
EU CONSULTATION
EU IMPACT ASSESSMENT
RECOMMENDATION ON TAX TREATIES
ATAP
A G U I D E T O G L O B A L T A X R E F O R M2 4
EU AND OECD ACTIONS
newspaper articles on the global tax debate
715
European Commission’s Anti-Tax Avoidance Package consisting of
documents
final BEPS reports issued by the OECD consisting of over 1,600 pages
23discussion drafts and working documents prepared by the OECD on BEPS actions which were subject to almost 1,400 contributions from stakeholders
31 countries have signed the OECD’s Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of Country-by-Country Reports
170+responses to
the European
Commission’s
CCCTB consultation3,000+ double taxation treaties could be impacted by 1 multi-lateral instrument
10,000+
2 5A G U I D E T O G L O B A L T A X R E F O R M
THE REACTION OF COMPANIES
• Today, some 50,000 multinational enterprises and their 450,000 affiliates employ over 200 million people throughout the world 1
• US Companies account for 53 out of the world’s top 100 companies 2
• Aggregate US investment in Europe totalled €2 trillion in 2014 and directly supports more than 4.3 million jobs in Europe 3
• In 2014, U.S. affiliate income in Europe rose 6%, to $238 billion 4
94% of the largest companies having an opinion on the matter think that global disclosure and transparency requirements will continue to grow in the next two years.(EY survey 2014: tax risk and controversy)
GLOBAL EXPANSION OF MULTINATIONALS
85%of US-headquartered companies report that they are experiencing more risk or uncertainty around tax legislation or regulation than they were two years ago.(EY survey 2014: tax risk and controversy)
82% of respondents said that they have made substantial or moderate changes to their tax strategy in response to reputational concerns (Allen & Overy survey 2015: Negotiating the minefield: challenges facing the corporate, tax function)
A G U I D E T O G L O B A L T A X R E F O R M2 6
2 7A G U I D E T O G L O B A L T A X R E F O R M
BACKGROUND TO BEPS
WHERE IT ALL BEGAN
When the OECD embarked on the BEPS project, it identified three key challenges
to be addressed – coherence, substance and transparency & certainty.
Within this guiding framework of three key pillars, the OECD went on to
develop fifteen specific actions (Action Plan July 2013).
1. Coherence of international tax systems: A number of the actions seek
to prevent BEPS activities that can arise due to mismatches across
international tax systems. Where this happens, a tax deduction for
expenses could be available in two countries or certain income is not
taxed anywhere. This is referred to as ‘double non-taxation’.
2. Re-aligning taxing rights with economic substance: Five BEPS actions
seek to overhaul the existing tax principles to ensure that there is a
greater alignment of taxable profits and the economic activity that
generates those profits (e.g. location of office space, tangible assets
and employees). In aligning profits with substance, there is a particular
emphasis on aligning people functions with the allocation of profits.
3. Improving transparency and certainty: Four BEPS actions increase the
information disclosure requirements by companies and exchange by tax
authorities in an effort to prevent BEPS activities.
Pascal Saint-Amans Director, Centre for Tax Policy & Administration, OECD
Coherence
Digital Economy (1)
Multilateral Instrument (15)
Transparency and Certainty
Substance
A G U I D E T O G L O B A L T A X R E F O R M2 8
BEPS 15 actions around 3 main pillars
Measuring BEPS (11)
Hybrid Mismatch Arrangements (2)
Preventing TaxTreaty Abuse (6)
DisclosureRules (12)CFC Rules (3) Avoidance
of PE Status (7)
TP Documentation and CbCR (13)
Interest Deductions (4)
TP Aspects of Intangibles (8)
Dispute Resolution (14)
Harmful TaxPractices (5)
TP/Risk and Capital (9)
TP/ High RiskTransactions (10)
2 9A G U I D E T O G L O B A L T A X R E F O R M
Action 15 - Multilateral Instrument• Action 15 of the BEPS Action Plan involves the development of a
multilateral instrument.
• A number of the BEPS actions require changes to bi-lateral tax
treaties in place between countries; Action 6, which seeks to
prevent treaty abuse and Action 7 - the work to prevent the
artificial avoidance of Permanent Establishments.
• As there are currently over 3,000 treaties in force worldwide, it
would be an extremely lengthy process to change each of these
treaties individually.
• The multi-lateral instrument will allow the existing tax treaties to be
modified without the need to agree the changes on a treaty-by-treaty
basis.
• The multi-lateral instrument is currently being developed within an
OECD working group and it is expected that this will be completed
later this year.
BEPS 15 actions around 3 main pillars
“Since the
opportunities for avoidance arise at the boundaries between tax systems, a multi-lateral approach makes sense
”
- Institute for Fiscal Studies, UK.
Action 1- The Digital EconomyAction 1 considers BEPS in the context of the Digital Economy. It was
felt that the other actions would address the BEPS risks in the digital
economy, so the OECD ultimately decided against introducing specific
ring-fenced solutions.
A G U I D E T O G L O B A L T A X R E F O R M3 0
Countries have
committed to adopting
these minimum
standards
ACTION 5:
Counter harmful
tax practices more
effectively, taking into
account transparency
and substance
ACTION 6:
Prevent treaty abuse
ACTION 13:
Re-examine Transfer
Pricing documentation,
including CbCR
ACTION 14:
Make dispute resolution
mechanisms more
effective
Countries are
expected over time
to move towards
these approaches
recommended by the
OECD
ACTION 2:
Neutralise the effects
of hybrid mismatch
arrangements
ACTION 4:
Limit base erosion via
interest deductions and
other financial payments
If countries choose
to implement these
measures, they should
be implemented as set
out by the OECD
ACTION 3:
Strengthen controlled
foreign company (CFC)
rules
ACTION 12:
Require taxpayers
to disclose their
aggressive tax planning
arrangements
MINIMUM STANDARDS
COMMON APPROACHES
GUIDANCE BASED ON BEST PRACTICE
Implementing BEPS
3 1A G U I D E T O G L O B A L T A X R E F O R M
Reinforcing the
existing OECD Model
Tax Convention and
OECD Transfer Pricing
Guidelines
ACTION 7:
Preventing the artificial
avoidance of permanent
establishment (PE)
status. This Action
will reinforce the
existing OECD Model Tax
Convention.
ACTIONS 8, 9 & 10:
Assuring that Transfer
Pricing outcomes are in
line with value creation.
These Actions will be
reflected in revised and
reinforced OECD Transfer
Pricing Guidelines.
Additional work on
technical matters
and implementation
monitoring
ACTION 1:
Conclusions on the tax
challenges of the digital
economy
ACTION 11:
Data and Analysis with
respect to BEPS
ACTION 15:
The multilateral
instrument
implementing treaty
based recommendations
REINFORCED INTERNATIONAL
STANDARDS
ANALYTICAL REPORTS
Implementing BEPS The 15 BEPS Actions have been broken down into five distinct categories in terms of implementation.
A G U I D E T O G L O B A L T A X R E F O R M3 2
Number Action OECD Recommendation
Implementation of the measures (with examples)
1 Digital Economy
The OECD decided that no ring fenced solutions should be introduced for the digital economy and that the other BEPS actions would address risks arising in the digital economy.
A future review and report on the impact of
the BEPS actions on the digital economy will
be published by 2020.
2 Hybrid Mismatch
Arrangements
Alignment of the tax treatment of hybrid instruments and entities between jurisdictions to ensure symmetry.
Countries have already started moving to
adopt this OECD recommendation.
The UK has released draft legislation on
hybrids. The Australian Tax O�ce has
signaled its intention to introduce rules.
3 Controlled Foreign
Companies (CFCs)
Introduction of CFC rules which seek to attribute certain income earned by CFCs to the controlling company.
This is best practice guidance and countries
globally are deciding on their approach to
implementation.
4 Debt Financing Introduction of a fixed ratio rule which will limit interest relief to between 10% - 30% of a company’s EBITDA.
A number of details need to be finalised on
this Action in 2016.
Some countries have already moved towards
implementation. For example, in the UK
HM Treasury held a public consultation on
the new proposals. France has already
introduced new legislation on interest
deductibility.
5 Preferential Regimes
(such as IP regimes) which
constitute harmful tax
practices
These “harmful” tax
practices are normally
based on activity that is
geographically mobile.
In future, preferential IP
regimes must be based
on a ‘modified nexus’
approach, which seeks to
align the tax benefits of the
regime with the location
of R&D expenditure. R&D
expenditure acts as a proxy
for substantial activity.
The modified nexus approach has already
been adopted in some countries.
For example, Ireland introduced one of the
first OECD compliant boxes (the Knowledge
Development Box) in 2015.
HM Treasury has launched a consultation
into the re-design of the existing UK patent
box.
IMPACT OF THE 15 ACTIONS
3 3A G U I D E T O G L O B A L T A X R E F O R M
Action Action OECD Recommendation
Implementation of the measures (with examples)
6 Tax Treaty Benefits
Tax treaties are a key
component in the global
tax framework. They ensure
that items of income are not
subject to tax in more than
one jurisdiction. Treaties
are entered into by two
jurisdictions and there are
currently over 3,000 of them
in force globally.
The OECD seeks to introduce
a number of anti-abuse
provisions into tax treaties
which will deny the use of
treaty benefits in cases
where the treaties are being
misused.
The anti-abuse provisions will be introduced
to bi-lateral tax treaties by way of the multi-
lateral instrument (see Action 15 below).
A G U I D E T O G L O B A L T A X R E F O R M3 4
Action Action OECD Recommendation
Implementation of the measures (with examples)
7 Permanent Establishment
A lot of work has been
carried out by the OECD
under Action 7 to broaden
the definition of Permanent
Establishment and “prevent
the artificial avoidance of PE
status”.
Any change to the definition of Permanent
Establishment is likely to be introduced to
bi-lateral tax treaties by way of a multi-
lateral instrument (still under discussion).
8,9,10 Transfer Pricing
Another one of the major
issues is Transfer Pricing. The
OECD is seeking to re-design
the global transfer pricing
framework with a focus
on economic substance,
Intangibles , Risk & Capital,
and High Risk Transactions.
Work is still ongoing on the Transfer Pricing
Actions. It is expected that revised guidelines
will be released by the OECD in the next 12
months.
Some countries have already moved to
adopt the new guidelines. For example, the
Australian Tax O�ce has recently launched a
consultation on the implementation of these
rules.
11 Measuring and monitoring
BEPS
The OECD will publish
statistics on the scope and
tax revenue impact of BEPS
activities.
Once the other BEPS actions are
implemented, the OECD and governments
will work together to assess the impact.
12 Disclosure of aggressive tax
planning
The introduction of rules
requiring the mandatory
disclosure of aggressive tax
planning arrangements.
Increased sharing of
information on disclosures
between tax authorities.
This is with countries to decide how to
implement the Action. Some countries
already have disclosure regimes. The issue
is also being considered by the European
Commission’s Code of Conduct Group
(Business Taxation).
13 Transfer Pricing Documentation
and Country-by-Country Reporting
(CbCR)
Under CbCR multinationals
that meet certain criteria
will be required to provide
tax authorities with details
of their global footprint on
a country-by-country basis,
including profits, tax paid,
employee headcount etc.
This is the BEPS action that has seen the
most work to date on implementation by
countries. A number of countries have also
committed to the implementation of CbCR.
For example, Ireland and Mexico have already
introduced domestic legislation. US Treasury
has published draft regulations which are
subject to a public consultation.
A G U I D E T O G L O B A L T A X R E F O R M
Action Action OECD Recommendation
Implementation of the measures (with examples)
14 Dispute
Resolution
Introduction of measures
to reduce uncertainty
for businesses on double
tax issues and improve
the dispute resolution
process.
The European Commission has recently
launched a consultation on improving
double tax disputes.
15 Multi-lateral
Instrument
A number of the BEPS
actions require changes
to tax treaties. To avoid
the re-negotiation of over
3,000 bi-lateral treaties,
it is proposed that the
treaties will be changed
by way of a multi-lateral
instrument.
The multi-lateral instrument is currently
being developed within an OECD
working group and it is expected that
this will be completed later this year.
3 5
A G U I D E T O G L O B A L T A X R E F O R M3 6
The EU Institutions
The European CommissionThe European Commission represents the interests of the EU as
a whole. The Commission has the right of initiative to propose
laws for adoption by the European Parliament and the Council
of the EU (national ministers). The Commission is composed of
28 Commissioners, one from each EU Member State. The two
Commissioners dealing with tax matters are; Pierre Moscovici,
Commissioner for Economic and Financial A�airs, Taxation and
Customs and Margrethe Vestager, Commission for Competition.
EUROPEAN UNION INSTITUTIONAL STRUCTURE - A FOCUS ON TAX
Pierre Moscovici, Commissioner, Economic and Financial A�airs, Taxation and Customs
EUROPEAN COUNCIL(EU Heads of State)
European Parliament
Economic and Monetary A�airs
Committee (ECON)
Special Committee
on Tax Rulings (TAXE Committee) Code of
Conduct Group (Business Taxation)
Platform for Good Tax
Governance
Joint Transfer Pricing Forum
Tax Expert Groups
EuropeanCommission
Directorate General for
Taxation and Customs Union
Directorate General for
Competition
European Council (ECOFIN)
Margrethe Vestager, Commissioner, Competition
3 7A G U I D E T O G L O B A L T A X R E F O R M
1. Directorate-General for Taxation and Customs Union (DG TAXUD): Its role is to develop and implement tax policy across the EU for the benefit of
citizens, businesses and the Member States.
Stephen Quest,Director General, DG TAXUD
Valère Moutarlier, Director, Direct Taxation, Tax Coordination, Economic Analysis and Evaluation, DG TAXUD
DG TAXUD has also put together a number of sub-groups to assist with policy
matters in certain areas. The key sub-groups dealing with corporate tax
matters are:
The Platform for Tax Good Governance :
The Platform for Tax Good Governance assists the Commission in developing
initiatives to promote good governance in tax matters in third countries, to
tackle aggressive tax planning and to identify and address double taxation.
To date, members of the Platform have been tax authorities from all
Member States and 15 organisations representing business, civil society and
tax practitioners. It enables a structured dialogue and exchange of expertise
which can feed into a more coordinated and e�ective EU approach against
tax evasion and avoidance. The Platform meets several times a year.
It is chaired by the Director General, DG TAXUD, Stephen Quest.
The EU Joint Transfer Pricing Forum :
The EU Joint Transfer Pricing Forum (JTPF) was formally established in 2006 to
assist and advise the European Commission on transfer pricing tax matters.
The JTPF works within the framework of the OECD Transfer Pricing Guidelines
and operates on the basis of consensus to propose to the Commission
pragmatic, non-legislative solutions to practical problems posed by transfer
pricing practices in the EU.
• The JTPF comprises one representative from each Member State’s tax
administration and 18 non-government organisation members.
• It has an independent Chair, which is currently CMS Bureau, a French law firm.
Within the Commission, there are a number of executive branches (Directorate-
Generals, or more commonly known as DGs). They deal with specific areas of policy.
For tax, the two most relevant are:
1. Directorate-General for Taxation and Customs Union (DG TAXUD)
2. Directorate-General for Competition (DG COMP)
A G U I D E T O G L O B A L T A X R E F O R M3 8
2. Directorate-General for Competition (DG COMP)
Directorate-General for Competition (DG COMP) is responsible for carrying out the
state aid examinations into tax rulings.
The Commissioner responsible for Competition is Margrethe Vestager.
The European CouncilThe European Council defines the EU’s overall political direction and priorities. It
does not negotiate or adopt EU laws but instead it sets the EU’s policy agenda
and identifies issues of concern and actions to take.
The members of the European Council are the heads of state or government of
the 28 EU Member States, the European Council President and the President of
the European Commission.
The CouncilThe Council is the institution representing the Member States’ governments. Also
known informally as the EU Council, it is where national ministers from each EU
country meet to adopt laws and coordinate policies.
The Council meets in 10 di�erent ‘configurations’, depending on the matter
being discussed. Council meetings are attended by representatives from each
member state at a ministerial level. Representatives have the right to commit the
government of their country and cast a government vote.
Economic and Financial A�airs Council (ECOFIN) Tax policy matters are
typically discussed at the Economic and Financial A�airs Council (ECOFIN)
configuration, which is made up of the Ministers for Finance of Member States.
The Code of Conduct Group (Business Taxation) was set up by ECOFIN in
1998. The group is primarily responsible for implementing the tax measures which
fall within the scope of the code of conduct for business taxation (which was
adopted in December 1997). The code of conduct for business taxation is not a
legally binding instrument but its adoption requires the commitment of Member
States to:
• abolish existing tax measures that constitute harmful tax competition
• refrain from introducing new ones in the future
The Code of Conduct Group (Business Taxation) primarily works on anti-abuse
rules, transparency and exchange of information in the area of transfer pricing
and the promotion of the principles of the code of conduct in non-EU countries.
3 9A G U I D E T O G L O B A L T A X R E F O R M
Alain Lamassoure, Chair Special Committee on Tax Ruling, European Parliament
European ParliamentThe European Parliament is made up of Members of the European Parliament
(MEPs) who are directly elected by voters in all Member States.
The Economic and Monetary A�airs Committee of the European Parliament
(“ECON” Committee) deals with matters relating to taxation. The Parliament has
no binding power on tax matters and instead it prepares reports and proposals,
which the Commission must respond to.
In February 2015, the Parliament established a ‘Special Committee on Tax
Rulings’ (TAXE Committee) chaired by French MEP, Alain Lamassoure.
The committee’s original mandate was to:
• Review EU Member States’ tax rulings as far back as 1 January 1991
• Review how the European Commission treats their existing state aid
arrangements, and
• Review how transparent Member States are about their tax rulings.
In December 2015, the Parliament extended the term of the TAXE Committee
to June 2016.
Policy Formulation in the EU - How it worksGiven the number of stakeholders involved within the EU, the formulation and
implementation of tax policy can be a lengthy process. This is primarily due to
the fact that any tax measures must be agreed unanimously by the 28 Member
States in order to become law - this is known as the ‘principle of unanimity’.
Where unanimity cannot be reached, it may be possible for a number of Member
States to introduce proposals by way of ‘enhanced cooperation’.
The Commission is responsible
for policy formulation;
however its proposals are not
binding on Member States.
Once a Commission proposal
has been received by the
Council, the proposal passes
through three levels at the
Council
1. Working party: Made up of the
appropriate representative from
the Permanent Representation
of each member state (i.e.
Government o�cials representing
their country in the EU)
2. Permanent Representatives
Committee (Coreper): Made up of
the European Union Ambassadors
of each Member State
3. Council configuration: Made up of a
ministerial level representative from
each member state (i.e. Ministers for
Finance attend ECOFIN)
Enhanced cooperation
is a procedure
whereby a minimum
of currently 9
EU countries are
allowed to establish
advanced integration
or cooperation in an
area within the EU
structures but without
the other EU countries
being involved. The
Financial Transactions
Tax is an example
of a tax proposal
that is currently
being progressed
under Enhanced Co-
operation
A G U I D E T O G L O B A L T A X R E F O R M4 0
Key principles governing EU Policy
Enhanced Cooperation: Enhanced cooperation is a procedure whereby a minimum of currently 9
EU countries are allowed to establish advanced integration or cooperation
in an area within the EU structures but without the other EU countries be-
ing involved. The Financial Transactions Tax is an example of a tax proposal
that is currently being progressed under Enhanced Co-operation.
Proportionality: Under the principle of proportionality, the action of the EU must be limited
to what is necessary to achieve the objectives of the Treaties. In other
words, the content and form of the action must be in keeping with the
aim pursued.
Subsidiarity: This is the principle whereby the EU does not take action (except in the
areas that fall within its exclusive competence), unless it is more e�ective
than action taken at national, regional or local level.
Unanimity: The term ‘unanimity’ relates to the requirement for all EU countries when
meeting within the Council to be in agreement before a proposal can be
adopted.
4 1A G U I D E T O G L O B A L T A X R E F O R M
A G U I D E T O G L O B A L T A X R E F O R M4 2
EUROPEAN COMMISSION’S TAX REFORM PROPOSALS
European Commission’s Tax Reform PlanThe Journey
For a number of years, the EU and its Member States have
been working together to address corporate tax reform:
• Since the formation of the Code of Conduct Group
(Business Taxation) in 1998, a number of measures
have been introduced to counter “harmful tax
practices”.
• In March 2012, the European Council called on the
Council and the Commission “to rapidly develop
concrete ways to improve the fight against tax fraud
and tax evasion”.
• This lead to the release of the Commission’s ‘Action
Plan to strengthen the fight against tax fraud and tax
evasion’ in December 2012, which was made up of over
30 measures to combat tax fraud and evasion.
• In June 2015, the Commisssion launched an ‘Action Plan
For a Fair and Efficient Corporate Tax System in the EU’.
• As part of this Action Plan, the Commission went on to
launch an Anti-Tax Avoidance Package in January 2016.
“Today we are
taking a major step towards creating a level-playing field for all our businesses, for fair and e�ective taxation for all Europeans.
”Pierre Moscovici, Commissioner, Economic and Financial A�airs, Taxation and Customs
Any EU tax proposals must be agreed unanimously by the 28 Member States in order to become law. !
4 3A G U I D E T O G L O B A L T A X R E F O R M
The major pieces of work on Anti-Tax Avoidance at the European Commission
ACTION PLAN FOR A FAIR AND EFFICENT CORPORATE TAX SYSTEM IN THE EU
ENSURING EFFECTIVE TAXATION WHERE PROFITS ARE
GENERATED
Improvements to transfer pricing
framework
Patent Boxes
Effective taxation
BETTER TAX ENVIROMENT FOR BUSINESS
Cross-border loss offset
Improvements to dispute resolution
mechanism
Coordination ofMember States’
audits
Reform of Code of Conduct Group
Reform of Platform on Tax Good Governance
PROGRESS ON TAX TRANSPARENCY
Automatic exchange on tax rulings - implementation
Non-cooperative tax jurisdictions list -
screening
Further work on transparency
2 3 4 EU TOOLS FORCOORDINATION5
Anti-TaxAvoidanceDirective
Directive onCountry-
by-Country Reporting
Recommendation on Tax Treaties
Communication on External
Strategy
Anti-TaxAvoidance
Package (ATAP)
CCCTB
2. Consolidation
1. Common tax base
CCCTB
LAUNCHES
2016
JANUARY
28
COMING
SECOND HALF OF
2016
1
Anti-Tax- AvoidancePackage
(Incorporating BEPS in the EU)
The Directive contains
6 key proposals:
3 from the OECD BEPS work
• Deductibility of interest
• Controlled foreign company (CFC) rules
• Hybrid mismatches
3 from work carried out by the Commission on CCCTB
• General anti-abuse rule
• Exit taxation
• Switch-over clause
+
A G U I D E T O G L O B A L T A X R E F O R M4 4
Anti-Tax Avoidance Package
The aim of the Anti-Tax Avoidance Package is to
ensure that there is consistent application of the BEPS
principles across the 28 Member States in the EU. The
package is made up of four main initiatives.
An Anti-Tax Avoidance Directive
This is a proposed Directive, which will be binding on the Member States of the EU once it is unanimously agreed and adopted. This contrasts with the OECD BEPS outputs, which are soft law. They are not legally binding but there is an expection that they will be implemented by countries that are part of the BEPS consensus. Compliance will be monitored through an OECD Peer Review process. The Anti-Tax Avoidance Directive has six key proposals. It is taking three elements of the original CCCTB proposal that address tax avoidance issues and it also contains three proposals that emanate directly from the OECD BEPS actions.
The proposal is that the measures in the Directive would be adopted as a ‘minimum level of protection’, although individual Member States can adopt a ‘higher level of protection’ if they wish. This means that Member States can choose to go further in their national law when implementing the standards of the Directive, but cannot introduce a lower standard.
These proposals are currently being considered by the Member States and will require unanimous agreement.
The Directive contains 6 key proposals:
3 from the OECD BEPS work
Deductibility of interest
Controlled foreign company (CFC) rules
Hybrid mismatches
+
3 from earlier work carried out by the Commission on
CCCTB
General anti-abuse rule
Exit taxation
Switch-over clause
CCCTB
2. Consolidation
1. Common
tax base
CCCTB
LAUNCHES
2016
JANUARY
28
COMING
SECOND HALF OF
2016
1
Anti-Tax- avoidancePackage
(Incorporating
BEPS in the EU)
Anti-TaxAvoidanceDirective
Directive onCountry-
by-Country Reporting
Recommendation on Tax Treaties
Communication on External
Strategy
Anti-TaxAvoidance
Package (ATAP)
4 5A G U I D E T O G L O B A L T A X R E F O R M
A Directive on Country-by-Country Reporting
The ATAP package also contains a draft Directive which proposes the introduction of Country-by-Country Reporting (“CbCR”) into EU law. The Directive is based on the OECD’s CbCR proposals, which are explored further in our Transparency Chapter. The Commission is proposing to further extend its Directive on Administrative Cooperation (DAC) to facilitate the exchange of CbCR Reports.
Recommendation on Tax Treaties
This element of the package is a Commission Recommendation, which encourages Member States to revise their tax treaties to:
• Include a Principal Purpose Test. The OECD proposes that either a Principal Purpose Test (“PPT”) or a Limitation on Benefits rule (“LOB”) be included in tax treaties. However, the Commission decided against recommending the LOB rule, as it “considers LOB clauses to be detrimental to the Single Market and, in particular, Capital Markets Union”.
• Amend the definition of Permanent Establishment.
Communication on External Strategy
The fourth element of the Anti Tax Avoidance Package is a communication which proposes a framework for a new EU external strategy for e�ective taxation. It identifies ways to promote tax good governance and assist developing countries to meet these governance standards. It also sets out a strategy for assessing and listing third countries (these are countries which are not members of the EU or European Economic Area (“EEA”)).
The Principal Purpose Test (“PPT”) is an anti-abuse provision which would remove treaty benefits where the principal purpose of arrangements is to obtain treaty benefits.
The Limitation on Benefits rule (“LOB”) limits treaty benefits to companies with su�cient presence in the relevant country, based on their ownership and activities. A number of countries, such as the US and Japan already have an LOB clause in their tax treaties.
A G U I D E T O G L O B A L T A X R E F O R M4 6
The CCCTB is based on two key elements:1. A Common base, where a single set of tax rules would be used to
calculate the taxable profits of companies across all Member States.2. Consolidation, where the total taxable profits arising to a corporate
in the EU would be consolidated and then divided amongst group entities using formulary apportionment, based on certain factors. In the first CCCTB proposal of 2011, these factors were sales, assets and employees.
The Commission held a public consultation on CCCTB, which closed in January 2016. It is expected that further proposals will emerge from the Commission in the second-half of 2016.
Common Consolidated Corporate Tax Base
Together with the Anti-Tax Avoidance Package, the re-launched Common Consolidated Corporate Tax Base (CCCTB) is at the heart of the Commission’s Action Plan for a Fair and Efficient Corporate Tax System.
A CCCTB proposal was originally put forward by the Commission in 2011, as a tax simplification measure to assist business with the complexity of dealing with multiple tax regimes in the EU. The original proposal was optional for business, whereas, the Commission intends this proposal to be a mandatory measure aimed at preventing aggressive tax planning.
CCCTB
2. Consolidation
1. Common
tax base
CCCTB
LAUNCHES
2016
JANUARY
28
COMING
SECOND HALF OF
2016
1
Anti-Tax- avoidancePackage
(Incorporating
BEPS in the EU)
DG COMPEU State Aid ExaminationsSince 2013, the Commission has been reviewing the tax ruling practices of Member States. It extended this inquiry to all Member States in December 2014. At the time of writing, the Commission has found that tax rulings granted by two Member States to specific companies were in breach of State Aid rules. The Commission has also concluded that a tax regime operated by one Member State was illegal under EU State Aid rules. The Commission is currently carrying out three separate inquiries into tax rulings granted by Member States.
4 7A G U I D E T O G L O B A L T A X R E F O R M
A G U I D E T O G L O B A L T A X R E F O R M4 8
ENSURING EFFECTIVE TAXATION WHERE PROFITS ARE GENERATED2
BETTER TAX ENVIROMENT FOR BUSINESS3
Key Objective: How the Commission is doing its work
Review of the EU transfer pricing framework to bring
transfer pricing outcomes in line with value creation.
The Joint Transfer Pricing Forum is currently working
on an EU approach to implementing BEPS transfer
pricing measures.
Aligning the income qualifying for preferential
patent box regimes with the location of R&D
activity.
The Code of Conduct Group (Business Taxation) has
endorsed the ‘modified nexus’ approach and will be
monitoring Member States to ensure existing boxes
are changed to meet this approach.
Limiting access to the benefits of existing EU
Directives if there is not “e�ective taxation”
elsewhere in the EU.
The Commission is currently considering potential
changes to the Interest and Royalties Directive and
the Parent-Subsidiary Directive.
Key Objective: How the Commission is doing its work
Enabling cross border loss o�set.A temporary cross-border loss relief mechanism is being
considered by the Commission as part of its CCCTB proposals.
Improving double taxation dispute
resolution mechanisms.
The Commission will propose improvements to the current
dispute resolution mechanisms by summer 2016. The
Commission is currently holding a public consultation on this.
ACTION PLAN FOR A FAIR AND EFFICENT CORPORATE TAX SYSTEM IN THE EU
4 9A G U I D E T O G L O B A L T A X R E F O R M
EU TOOLS FORCOORDINATION5
PROGRESS ON TAX TRANSPARENCY4
Key Objective: How the Commission is doing its work
Automatic exchange of information
on cross border tax rulings.
EU Member States have adopted Directive (DAC 3) which provides for the
automatic exchange of rulings and Advance Pricing Agreements (“APAs”).
The Code of Conduct Group (Business Taxation) is also developing
guidelines on the conditions for the issue of tax rulings by Member
States.
Ensuring a more common
approach to third country
non-cooperative tax jurisdictions.
The External Strategy for E�ective Taxation, released as part of the
Commission’s Anti-Tax Avoidance Package, sets out an approach to
assessing third countries.
Country-by-Country Reporting
(exchange of information on
companies between tax authorities).
The Commission published a draft Directive as part of the Anti-Tax
Avoidance Package which sets out the EU framework for CbCR between
EU Member States.
The Commission is currently carrying out an impact assessment on
public CbCR. The results of this assessment are expected in April 2016.
Key Objective: How the Commission is doing its work
Improving Member States’
coordination on tax audits.
The Platform on Tax Good Governance will be
considering how to improve cross-border audits.
Reforming the Code of Conduct Group
(Business Taxation) and the Platform on Tax
Good Governance.
The Commission has recently prolonged the
mandate of the Platform on Tax Good Governance
and will be making proposals on the Code of
Conduct Group.
A G U I D E T O G L O B A L T A X R E F O R M5 0
THE US & THE GLOBAL TAX AGENDA
Global tax reform is an issue of significance in the US
for a number of reasons:
1. Breadth and Scale of US Multinationals Globally
The breadth and scale of US multinationals with operations across the world
who will be impacted by new EU and OECD global tax rules/legislation and
any unilateral action being taken by individual countries.
• US Companies account for 53 out of the world’s top 100 companies
based on market capitalisation in 2014
PwC Report on Global Top 100 Companies by market capitalisation,
March 2015
• US majority-owned affiliates employed roughly 14.5 million workers in
2013. 35% of these were in Europe
The Case for Investing in Europe 2015, AmChams in Europe
2. The US is a member of the OECD
The US is one of the 34 members of the OECD whose national tax legislation
and rules will be impacted by certain, if not all, aspects of the BEPS Plan.
Its tax administration system will also be impacted by changes arising from
BEPS and the EU’s implementation of BEPS.
Robert Stack, Deputy Assistant Secretary (International Tax Affairs)
US Department of the Treasury, is the US representative in the BEPS
negotiations and is a leading player in global tax reform.
“The United States has a great deal at stake in the BEPS project and
a strong interest in its success…. Our active participation is crucial to
protecting our own tax base from erosion by multinational companies,
much of which occurs as a result of exploiting tax regime di�erence”
Testimony of Robert Stack to the Senate Committee on Finance
Hearing on OECD BEPS Reports, 1 December 2015.
“... as the home to some of the world’s most successful and vibrant
multinational firms, we have a stake in ensuring that companies
and countries face tax rules that are clear and administratable and
that companies can avoid unrelieved double taxation, as well as
expensive tax disputes. Both the United States and our companies
have a strong interest in access to dispute resolution mechanisms
around the world”
Testimony of Robert Stack to the Senate Committee on Finance
Hearing on OECD BEPS Reports, 1 December 2015.
5 1A G U I D E T O G L O B A L T A X R E F O R M
Some of the BEPS issues that emerged in the debates and discussion in
the US include Country by Country Reporting (CbCR):
“For example, we are concerned about the country-by-country (CbC) reporting standards that will contain sensitive information related to a U.S. multinational’s group operations…….”Letter from Congress to the Honorable Jacob Lew, Secretary of the
Treasury, 9 June 2015.
“Companies have also been concerned about various reporting requirements that could impose significant compliance costs on American businesses and force them to share highly sensitive proprietary information with foreign governments”Senator Orrin Hatch, Senate Committee on Finance Hearing on OECD BEPS
Reports, 1 December 2015.
Another issue in the US, which is being impacted by the OECD BEPS
Plan, is Innovation Boxes. In July, members of the US Congress, House of
Representatives Committee on Ways and Means (Charles Boustany and
Richard Neal) released proposals for an “innovation box”.
THE OECD Modified Nexus approach will impact the US proposal: “Their plan would allow American businesses to better compete with foreign companies and keep their research and development facilities here in the US. This is just one piece of international tax reform, but it’s an important one” Paul Ryan, [former] Chairman of the US Congress, House of Representatives
Committee on Ways and Means, Press Release, 29 July 2015.
“The growing
bipartisan consensus in Washington on how to achieve business tax reform creates the opportunity to take this key step sooner rather than later
”Jacob Lew, Secretary US
Department of the Treasury
A G U I D E T O G L O B A L T A X R E F O R M5 2
3. The US Tax Reform Agenda
There is an ongoing debate in the US about the need to reform its own tax
system. Many figures have stated that the US tax system is broken and
needs to be fixed. There have been calls on Congress to address this issue.
Speaking on US Tax Reform, Secretary of the US Department of the
Treasury, Jacob Lew had this to say:
“The Budget again calls for a fiscally-responsible business tax reform, and makes a number of concrete tax reform proposals, including a complete reform of our international tax system” Jacob Lew, Secretary, US Department of the Treasury, Senate Committee
on Finance Hearing on The President’s Fiscal Year 2017 Budget, 10
February 2016.
“Our first
e�ort must be to address
our broken international tax
rules and the growing threat
to American worldwide
companies
”Kevin Brady, Chair, US Congress,
House of Representatives
Committee on Ways and Means,
Committee hearing on the
President’s FY 2017 Budget,
11 February 2016.
High corporate tax rates in the US are also a subject of much debate
when it comes to US tax reform with the top US corporate tax rate of 35%
comparatively higher than competitor jurisdictions.
“High statutory rates encourage multinational firms to find ways to shift profits, especially on intangible income, to other jurisdictions. So lowering our statutory rate while broadening the base could help reduce erosion of the US base” Robert Stack, Deputy Assistant Secretary (International Tax A�airs) US
Department of the Treasury, Senate Committee on Finance Hearing on
OECD BEPS Reports, 1 December 2015.
5 3A G U I D E T O G L O B A L T A X R E F O R M
Global & US Tax Reform Agenda – The Main Stakeholders
US Congress, House of Representatives Committee on Ways and MeansThis is the chief tax-writing committee in the House of Representatives.
Under the US Constitution, all Bills for raising revenue must originate in the
House of Representatives. US Congressman Kevin Brady (R-Texas) is the
Chair of the Committee.
“In the nearly 30 years since enactment of the Tax Reform Act of 1986, the world has changed and countries around the globe have adapted their tax systems to maximize their competitiveness in today’s global economy while the United States has fallen behind” Kevin Brady, Keynote Address at the Tax Council Policy Institute
Symposium, 12 February 2016.
US Senate Committee on Finance This is a standing committee of the United States Senate which deals with
tax matters and other revenue measures.
The Committee is Chaired by Senator Orrin Hatch (R – Utah)
Joint Committee on TaxationThe Joint Committee is a committee of the US Congress and is made up of
experienced professional staff. The Chair is Senator Orrin Hatch. It assists
Congressional tax-writing committees and Members of Congress with the
development and analysis of legislative proposals.
Kevin Brady, Chair, US Congress, House of Representatives Committee on Ways and Means
Senator Orrin Hatch, Chair, Senate Finance Committee
A G U I D E T O G L O B A L T A X R E F O R M5 4
Department of the Treasury The Department of the Treasury is responsible for ensuring the financial
security of the United States.
Secretary, US Department of the Treasury, Jacob Lew.
Deputy Assistant Secretary (International Tax Affairs) US
Department of the Treasury, Robert Stack.
Mr Stack is the US representative in the BEPS negotiations and is a
leading player in global tax reform.
The basic functions of the Department of the Treasury include;
• Collecting taxes, duties and monies paid to and due to the US, and
paying all bills of the US
• Enforcing Federal finance and tax laws;
• Investigating and prosecuting tax evaders, counterfeiters and forgers
The Department of the Treasury is actively involved in the tax reform
discussion and it has listed tax reform as one of the pillars in the
administration’s Fiscal Year ’17 Budget proposals.
Jacob LewSecretary US Department of the Treasury
US Presidential Election 2016In the run up to the US presidential election later this year, corporate tax
reform is fast emerging as a key campaign issue for all candidates.
Robert Stack Deputy Assistant Secretary (International Tax Affairs) US Department of the Treasury
5 5A G U I D E T O G L O B A L T A X R E F O R M
A G U I D E T O G L O B A L T A X R E F O R M5 6
5 7A G U I D E T O G L O B A L T A X R E F O R M
TAX DATA & TRANSPARENCY – AT THE HEART OF GLOBAL TAX REFORM
Transparency is at the heart of the global tax reform agenda and the
objective is to ensure that multinationals provide more and better
information about their business to tax authorities worldwide.
The transparency measures being put forward by the OECD and the EU
are focused on three core elements:
1. Country-by-Country Reporting (“CbCR”)
• The OECD position on CbCR is outlined in Action 13.
• The European Commission has published a draft Directive on CbCR as
part of its Anti-Tax Avoidance Package.
2. Transfer Pricing documentation – master file and local file
• The OECD position on transfer pricing documentation is covered by
Action 13 in the BEPS plan.
• In the EU, the Joint Transfer Pricing Forum is working on the EU
approach to implementing this BEPS action.
3. Exchange of tax rulings
• In the OECD, this is dealt with by BEPS Action 5 – it calls for the
compulsory spontaneous exchange of certain tax rulings.
• In the EU, DAC 3 requires the compulsory automatic exchange of tax
rulings and APAs (Advance Pricing Agreements).
• Spontaneous exchange of tax rulings means that a country provides its treaty partner with rulings about a taxpayer if it considers that it is relevant for the other country.
• The automatic exchange of cross-border tax rulings and advance pricing arrangements means the automatic provision of information by one Member State to all Member States and the Commission.
A G U I D E T O G L O B A L T A X R E F O R M5 8
TAX TRANSPARENCY - THE THREE PILLARS
Country-by-Country Reporting
OECD
BEPS ACTION 13:
Introduction of Country-by-Country Reporting as
a minimum standard
CbCR will not be made public
OECD
BEPS ACTION 13:
Broadening of the information to be
provided in the master file and local file
OECD
BEPS ACTION 5:
Compulsory spontaneous exchange of certain rulings that could give rise to BEPS
EU:
Draft Directive for the implementation of
Country-by-Country Reporting
Impact assessment to determine the feasibility
of public CbCR
EU:
EU-TPD to be reviewed to align the current requirements of the master file and local
file with the OECD recommendations
EU:
Extension of DAC to allow for the mandatory automatic exchange of
tax rulings and APAs
Exchange of Rulings
Transfer Pricing Documentation
EU TPD
The Code of Conduct on transfer pricing documentation for associated enterprises in the European Union (EU
TPD) was developed by the EU Joint Transfer Pricing Forum (JTPF) and was officially adopted on 27 June 2006.
According to it, “Member States will accept standardised and partially centralised transfer pricing documentation
for associated enterprises in the EU and to consider it as a basic set of information for the assessment of a
multinational enterprise group’s transfer price”.
5 9A G U I D E T O G L O B A L T A X R E F O R M
1. Country-by-Country Reporting (“CbCR”)
Background
The newly proposed CbCR is simple (at least in concept).
• Multinational companies with a global turnover of €750m or more must
prepare a CbC report, providing information on their global footprint.
• This report must be filed with the tax authority in the country where the
parent is tax resident, and
• That tax authority shares the CbC report with all tax authorities where the
MNC operates*.
Although the basic concept is simple, the implementation of CbCR will give
rise to a range of complexities.
• OECD Action 13 provides overview guidance on CbCR, but there will be
variations in different countries on interpretation, as implementation
begins to roll out. This could mean some differences in the rules country
by country and even if these differences are small, they must be
understood and monitored by businesses.
• The pace of implementation by countries will also vary. Some countries,
such as Ireland, Spain and Mexico, have already implemented the
necessary legislation and over the coming months we will see many more
countries adopting the regime.
*Where a qualifying Competent Authority agreement is in place that provides for the
exchange of country-by-country reports.
Is it always the parent who files the CbCR report?
The intention is that the MNC
parent will file the CbCR in
their country of tax residence.
However;
• I n certain circumstances,
the parent can choose to
nominate another group
company (known as the
‘surrogate’) to file the
CbCR on behalf of the
group. When this happens,
the report is filed in the
surrogate’s country of tax
residence.
• Where the parent company
does not file a CbCR (either
due to a failure to file or
due to the fact that CbCR
legislation is not in place
in the parent’s country), a
tax authority may request
a local subsidiary to file the
CbCR. This is known as the
secondary mechanism.
A G U I D E T O G L O B A L T A X R E F O R M6 0
What information is included in
the CbCR?
The model CbCR template
developed by the OECD consists of
three tables:
Table 1:
This is mainly quantitative data
which must be completed by the
MNC on a country-by-country
basis. For each country, the MNC
must provide detail on revenue,
profit (or loss) before income
tax, income tax paid, income
tax accrued, stated capital,
accumulated earnings, number of
employees and tangible assets.
Table 2:
This table consists of more
qualitative information, which must
be provided on an entity-by-entity
basis in the group, including the
country of tax residence and the
nature of the entity’s business
activities.
Table 3
This table consists of additional
information that is relevant to the
MNC e.g. exchange rates, specific
tax reliefs claimed, details of
transparent entities.
In completing each of the tables,
MNCs will need to consider many
details on the information provided.
For example, when disclosing the
number of employees, MNCs will
have to decide what approach
to take to part-time employees,
contractors, leavers etc. The OECD
has provided some guidance on
completing the tables.
The aim for MNCs is to produce a
full and accurate CbC report, trying
to anticipate questions that might
arise from tax authorities and
dealing with them up front to avoid
disputes futher down the line.
ANNEX III TO CHAPTER V. A MODEL TEMPLATE FOR THE COUNTRY-BY-COUNTRY REPORT – 35
GUIDANCE ON TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING © OECD 2014
Annex III to Chapter V
A model template for the Country-by-Country Report
Table 1. Overview of allocation of income, taxes and business activities by tax jurisdiction
Name of the MNE group: Fiscal year concerned:
Tax Jurisdiction
Revenues Profit (Loss) Before
Income Tax
Income Tax Paid (on
cash basis)
Income Tax Accrued –
Current Year
Stated capital
Accumulated earnings
Number of Employees
Tangible Assets
other than Cash and
Cash Equivalents
Unrelated Party
Related Party Total
36 – ANNEX III TO CHAPTER V. A MODEL TEMPLATE FOR THE COUNTRY-BY-COUNTRY REPORT
GUIDANCE ON TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING © OECD 2014
Table 2. List of all the Constituent Entities of the MNE group included in each aggregation per tax jurisdiction
Name of the MNE group: Fiscal year concerned:
Tax Jurisdiction
Constituent Entities resident in
the Tax Jurisdiction
Tax Jurisdiction of organisation or incorporation if
different from Tax Jurisdiction of
Residence
Main business activity(ies)
Rese
arch
and
Deve
lopme
nt
Holdi
ng or
Man
aging
int
ellec
tual p
rope
rty
Purch
asing
or
Proc
urem
ent
Manu
factur
ing or
Pr
oduc
tion
Sales
, Mar
ketin
g or
Distr
ibutio
n
Admi
nistra
tive,
Mana
geme
nt or
Sup
port
Servi
ces
Prov
ision
of S
ervic
es to
un
relat
ed pa
rties
Inter
nal G
roup
Fina
nce
Regu
lated
Fina
ncial
Se
rvice
s
Insur
ance
Holdi
ng sh
ares
or ot
her
equit
y ins
trume
nts
Dorm
ant
Othe
r2
1.
2.
3.
1.
2.
3.
2 Please specify the nature of the activity of the Constituent Entity in the “Additional Information” section.
ANNEX III TO CHAPTER V. A MODEL TEMPLATE FOR THE COUNTRY-BY-COUNTRY REPORT – 37
GUIDANCE ON TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING © OECD 2014
Table 3. Additional Information
Name of the MNE group: Fiscal year concerned:
Please include any further brief information or explanation you consider necessary or that would facilitate the understanding of the compulsory information provided in the country-by-country report.
Table 1:
Table 2:
Table 3:
6 1A G U I D E T O G L O B A L T A X R E F O R M
Some added CbCR complexities
• Some MNC have large
and complex structures,
which can include branches,
partnerships, joint
ventures, etc.
• The MNC needs to
understand what data/
entities are to be included
in the CbCR.
• Information may not be
readily available to complete
the template.
The CbCR process is likely to
cross many functions in the
business - tax, finance, IT,
legal, HR, etc.
Completing a CbC Report – making sure the business is readyCbCR is a new initiative for MNCs and it is likely to have significant
implications for both the tax function of an MNC and other business
units. There are three key steps in the CbCR process:
1. Gathering the data and other information necessary to complete
Tables 1-3 in the CbC Report.
2. Assessing this information once it has been collected to ensure that
it accurately reflects the global business footprint.
3. Ensuring the MNC is ready to deal with the issues that will arise after
the information has been provided.
Step 1: Gathering the data for the CbCR
Significant planning is required to source the quantitative and
qualitative data and ensure that IT and other business systems will be
able to generate the data needed, in the correct format.
• There is a certain amount of flexibility about the source of the
financial information – management accounts, financial statements,
etc.
• The source of information chosen must provide a proper reflection of
the global business.
• Some information is easier to source than others – e.g. it is unlikely
that there will be readily available data on full time equivalent
employees in each country.
• The information can be gathered from the ‘top down’ (using
the MNCs consolidated accounts, as a starting point) or from
the ‘bottom up’ (using the accounts of the constituent group
companies).
All decisions made regarding the data gathering process and the data
disclosed should be properly documented for future reference as
year-on-year consistency in approach is crucial.
A G U I D E T O G L O B A L T A X R E F O R M6 2
Step 2: Assessing the information collected
After gathering the information, the MNC will need to assess how it reflects
the footprint of the business to an outside party.
• Particular issues or particular countries may be identified where there is a
higher likelihood of challenge from tax authorities.
• Economic substance and activities in each jurisdiction must match profits
arising there. If this is not the case in any jurisdiction, then adjustments
to the business model may be necessary to ensure compliance with BEPS
principles.
• The information generated from the CbCR process should be in line with
the business’ transfer pricing position.
Step 3: Dealing with issues that may arise from CbCR
CbCR is a risk assessment tool to be used by tax authorities. MNCs should
therefore expect additional questions and even challenges once it has been
filed and shared with tax authorities internationally.
The Board will want to ensure that:
• There is a proper explanation and narrative for the figures prepared and
that the figures support this narrative.
• The tax risk has been quantified and the MNC is prepared to deal with any
controversy that might arise.
• The corporate tax governance policies of the MNC are up to date, to
reflect the changing global tax agenda.
• A robust tax control framework is in place to maintain tax compliance and
manage tax risk.
EU position on CbCRIn 2016, the European Commission released proposals as part of their Anti-Tax
Avoidance Package, to extend their Directive on Administrative Cooperation to
facilitate the exchange of country-by-country reports.
EU impact assessment on
Public CbCR
• On release of their CbCR
proposals, the OECD explicitly
stated that they were not
pursuing public CbCR on
grounds of confidentiality
concerns.
• However, there are continued
calls by NGOs for CbC
Reports to be made public
• The European Commission
is currently carrying out
an impact assessment to
determine whether the CbC
Reports should be made
public and the results of this
assessment are expected to
be revealed in April 2016.
• There are likely to be
continued calls from the
public for CbC Reports to be
published
6 3A G U I D E T O G L O B A L T A X R E F O R M
2. Transfer Pricing documentation
In addition to the new CbCR regime, the OECD has also broadened the
scope of existing transfer pricing documentation by increasing the level of
information included in both the Master File and Local File.
In particular, the Master File will provide authorities with an overview of the
MNC’s global operations. It is different than the CbC Reports in terms of its
content and purpose.
Comparison of CbCR Transfer Pricing Master File
CbCR Master File
Scope
Quantitative analysis of global footprint and financial results of the
MNC
High level overview of the MNC’s business
PurposeTo be used for high level risk assessment by tax
authorities
To support the MNC’s transfer pricing policy
Who must prepare and
file?
Groups with turnover of €750m or above
No de-minimus of €750m
Delivery method
Provided by the MNC parent to the tax authority in their
country of residence and then exchanged; tax authority to tax
authority
Provided directly by MNC group entities to
their local tax authority
Master file
The maintenance of a Master File has been a transfer pricing documentation
requirement for many years. However, the format and scope of the
information required to be included in the Master File has now been widened
by the OECD.
The Master File must now give a full picture of the MNC group, providing
information such as:
• The end to end supply chain
• The corporate legal structure
• Any strategy on intangibles
• The group’s financing activity
• The tax policy
• Information about agreements with tax authorities
The Master File is available to all tax authorities where the MNC has
operations and is filed locally by each entity.
A G U I D E T O G L O B A L T A X R E F O R M6 4
Local file
The local file contains information about how the intra-group transactions
of an individual entity conform to the arm’s length standard. The local file is
submitted to the (entity’s) local tax authority.
The EU Joint Transfer Pricing Forum (JTPF)The EU Joint Transfer Pricing Forum (JTPF) has lead the development of EU
Transfer Pricing Documentation requirements.
The JTPF is now in the process of reviewing these requirements to take
account of the conclusions of the BEPS work.
3. Exchange of Tax Rulings
OECD
OECD Action 5 sets out the OECD framework for exchange of tax
rulings:
1. Compulsory spontaneous information exchange between governments in
respect of taxpayer-specific rulings
2. The framework details the six types of rulings that will be subject to
compulsory spontaneous exchange
3. For most rulings, the information will be automatically exchanged with
the countries of residence of all related parties with which a company
enters into a transaction for which a ruling is granted
EU
In December 2015, the EU Council’s ECOFIN agreed to extend the provisions
of the EU Directive on Administrative Cooperation (DAC 3), to cover the
automatic exchange of tax rulings and Advance Pricing Agreements
between Member States.
A G U I D E T O G L O B A L T A X R E F O R M 6 5
The DAC - The EU Directive at the centre of the EU’s work on Tax Transparency
The EU has been working on the tax transparency agenda for many years.
The Directive on Administrative Cooperation (otherwise known as “DAC”) is
at the core of tax transparency within the EU and it has been broadened in a
number of ways since it was first adopted in 2011. Directives relating to tax
always require unanimity.
While the original DAC has evolved into what is now likely to become DAC4,
there was much work undertaken along the way.
The DAC Journey: • The Commission’s work began with ‘DAC 1’ which was largely aimed at
countering banking secrecy.
• The DAC was extended in 2014 to facilitate the exchange of financial
account information (DAC 2).
• March 2015 - the Commission presented the Tax Transparency Package
which set out a number of measures to boost tax transparency. At the
core of this package was a proposal to introduce the automatic exchange
of information between Member States on their tax rulings.
• December 2015 - the ECOFIN council agreed to extend the provisions
of the DAC (DAC 3) to cover the automatic exchange of tax rulings and
Advance Pricing Agreements between Member States.
• In 2016, the Commission released proposals as part of the Anti-Tax
Avoidance Package to extend the DAC to facilitate the exchange of CbC
reports.
A G U I D E T O G L O B A L T A X R E F O R M6 6
82%of respondents said that they have made substantial or moderate changes to their tax strategy in response to reputational concerns- ALLEN & OVERY SURVEY 2015: NEGOTIATING THE MINEFIELD: CHALLENGES FACING THE CORPORATE, TAX FUNCTION
WHY? HOW?
Closer alignment of substance and profit
The objective of the BEPS Action Plan is to
ensure that profits are taxed in the jurisdiction
where the economic activities generating
such profits are performed and where value is
created.
Companies will need to review their operating
model to ensure that they have an even
stronger alignment between profits earned
globally and the substance or activities creating
those profits.
Transparency Country-by-Country Reporting (CbCR) and the
sharing of information is one of the biggest engines
of tax transparency - it is set to have one of the
biggest impacts on companies.
For the first time, large corporates will be required
to disclose key business information on a country-
by-country basis which will be shared between
tax authorities across the world. Compliance with
CbCR rules, together with broader Transfer Pricing
documentation requirements, is likely to have
a significant impact on in-house tax functions
in terms of resources, sta�-mix and systems
implementation.
Country by Country Reporting & Increased
Interventions
CbC Reports will give tax authorities greater
visibility of a corporation’s global tax position, which
will inevitably lead to an increase in the level of
audit interventions. In preparation for engagement
with tax authorities, companies will need to
consider where their profits are generated and
whether the local economic substance correctly
reflects that level of profit.
Practical Collation of Data
The collation of data for the CbC Reports, together
with the increased interaction with tax authorities
will have an impact on the resources of in-house
tax functions, and the wider business (e.g. IT,
Human Resources, Finance, Data Teams etc.)
A G U I D E T O G L O B A L T A X R E F O R M 6 7
MULTINATIONAL COMPANIESSO WHO IS IMPACTED BY GLOBAL TAX REFORM PROPOSALS?
WH
O IS IM
PACTED
BY G
LOBA
L TAX
REFORM
PROPO
SALS?
WHY? HOW?
Transparency Transfer Pricing Documentation (including tax
rulings)
The scope of transfer pricing documentation has
been broadened meaning that companies will
have to provide a greater degree of information to
tax authorities through the master file and local
file.
Both the EU and OECD have put forward proposals
to enable the automatic exchange of information
of tax rulings and APAs between tax authorities.
Transfer Pricing
The re-design of the transfer pricing principles
will require a closer alignment of profits with the
location of economic value creation. In particular,
businesses that derive value from intangibles
will have to consider the location of the key
‘DEMPE’ functions in relation to those intangibles
(Development, Enhancement, Maintenance,
Protection and Exploitation).
This requires an in-depth assessment of the
business processes and the organisational model.
It also requires an understanding of the people in
the organisation who manage the risks and whether
the companies in the group which control the risks
actually have the financial capacity to bear them.
The new transfer pricing rules are more focused on
people functions and less on contractual terms and
capital. Key questions for businesses to consider are;
• What key employees do and where,
• Whether the profits being realised in these global
locations are aligned with the functions and
substance located there,
• Where key decisions are taken and where
management control is actually a�ected?
As mentioned above, more detailed end-to-end
transfer pricing documentation will be required,
together with a new CbCR report which provides
quantitative information and analysis about the
company’s global business and footprint.
The revised transfer pricing guidelines are still
being developed by an OECD working group and it is
expected that these will be released in the next 12
months.
85%of US-headquartered
companies report that they are experiencing more risk or
uncertainty around tax legislation or
regulation than they were two years ago.
- EY SURVEY 2014: TAX RISK AND CONTROVERSY
A G U I D E T O G L O B A L T A X R E F O R M6 8
WHY? HOW?
Intangibles Definition of Intangibles
The definition of intangibles has been expanded
and there have been significant changes to the
rules governing which group company is entitled
to the income from intangibles. Returns on
intangibles will be determined based on where
the DEMPE functions are carried out.
New Modified Nexus Approach (substance
aligned with profit)
The introduction of a new Modified Nexus
Approach for patent / innovation boxes means
that companies wishing to avail of these
preferential IP regimes need to review the way
in which a company’s R&D is performed, who
performs and manages it and where the resulting
IP is held and managed.
Global employee mobility
Some realignment of employee locations may be
needed to ensure that substance is better aligned
with profit. Companies must have employees with
the requisite skills, experience and decision making
ability operating in the correct location.
In a post BEPS world, employees will have to
become more globally mobile. As employees move
cross-border, companies will need to keep under
review their PE risk and also ensure that they are
complying with their employment tax obligations.
A G U I D E T O G L O B A L T A X R E F O R M 6 9
WH
O IS IM
PACTED
BY G
LOBA
L TAX
REFORM
PROPO
SALS?
WHY? HOW?
Permanent establishment changes
PE risk has increased i.e. the risk of a company
creating a taxable presence in a foreign country.
Lower thresholds will now apply to PEs and it is
more likely that some activities carried on in a
country will create a tax presence in that country.
This can lead to a corporate tax charge in that
foreign country plus increased compliance costs -
tax registrations, keeping books and records, filing
tax returns, etc.
PE risks that require particularly careful monitoring
include the holding of inventory overseas,
warehousing and sales functions.
Debt Financing
The proposed changes to interest deductibility
will have a significant impact on companies’
commercial financing arrangements and the cost
of capital. They could impact capital expenditure
and investment decisions, acquisitions, the
location of working capital and even the valuation
of the group.
The fixed ratio rule could restrict a company’s tax
relief on interest payments to a range of between
10% - 30% of EBITDA. Certain capital intensive
industries and the financial services sector could
be particularly a�ected by the proposals. In
addition, this may be a particular challenge for
companies that have a low EBITDA because their
interest deduction will be restricted to a maximum
30% of a low base line amount.
Countries may have the option to introduce a
group wide ratio in any new legislation on interest
deductibility and this could reduce the impact
of the issue in certain cases. Rather than each
company in the group bearing a 10% - 30%
restriction of their individual EBITDA, it is the group
as a whole that is subject to the restriction.
Increased interaction with tax authorities
The new rules and the heightened transparency
levels brought about by automatic exchange
of tax rulings, CbCR and new transfer pricing
documentation, will result in more interaction
with global tax authorities. Companies need to be
able to foresee the queries which may arise from
analysis by tax authorities of key company data
provided to them.
A G U I D E T O G L O B A L T A X R E F O R M7 0
“Other
functions in the business will also have a role to play such as public a�airs, communications and operations.
”
WHY? HOW?
Increased public interest in tax a�airs and tax strategy of companies
Given the increased public and media scrutiny of
corporates’ tax a�airs, boards will want a greater
oversight of the tax function to ensure that the
reputational and financial risks are managed.
Corporate governance is key to ensuring that
these new rules are adhered to, and given
the increased media attention on corporate
tax strategies, this will mean that boards will
now be required to play a greater role in the
implementation and monitoring of corporate tax
policies.
Other functions in the business will also have a
role to play such as public a�airs, communications
and operations.
A G U I D E T O G L O B A L T A X R E F O R M 7 1
WH
O IS IM
PACTED
BY G
LOBA
L TAX
REFORM
PROPO
SALS?
WHY? HOW?
Implementing tax reform by national governments - three main strands
National governments are now responsible for
implementing tax reform. This involves:
1. Finalising the remaining work on the OECD
BEPS actions and implementing the actions
2. For EU Member States, ensuring that BEPS is
implemented in line with EU law together with
other unanimously agreed EU tax reforms.
3. Some governments may also take unilateral
action that goes beyond OECD and EU
measures.
The extent and pace of implementation globally
is going to have a significant impact on business
certainty and cost.
Finalising the remaining work on some OECD BEPS actions and implementing the actions
A number of key issues in the OECD BEPS project
remain to be finalised;
• Work is ongoing on the revised transfer pricing
guidelines and it is expected that these will be
released by the OECD in the next 12 months.
• The multi-lateral instrument is currently being
developed by an OECD working group and it is
expected this will be finalised by the end of
2016.
• On interest deductibility, work is ongoing to
finalise the details of a group ratio carve-out
and special rules for insurance and banking
sectors.
Countries are currently working with the OECD to
complete this remaining work.
In parallel with finalisation of this policy work,
countries are also beginning to implement
the main OECD actions based on the reports
published in October 2015.
A G U I D E T O G L O B A L T A X R E F O R M7 2
GOVERNMENTS ACROSS THE WORLDSO WHO IS IMPACTED BY GLOBAL TAX REFORM PROPOSALS?
WHY? HOW?
For EU Member States: Negotiating and Unanimously Agreeing New EU Laws on Tax
The European Commission published an Anti-Tax
Avoidance Package in January 2016 as part of its
Action Plan for a Fair and Efficient Corporate Tax
System. The proposals in this package need to be
considered by all EU Member States and agreed
by unanimity. The package has four elements:
• Anti-Tax Avoidance Directive to strengthen
anti-tax avoidance measures
• Amendment to the Directive on Administrative
Cooperation (DAC) to implement Country-by-
Country Reporting
• Recommendation on Tax Treaties
• Communication on External Strategy for
Effective Taxation
This package is a proposal from the Commission
so there is a lot of work, and negotiation to be
carried out before we see final agreement across
the EU. The proposals will be discussed in Council
working groups (consisting of officials from all
Member States) and it is likely that a number
of modifications will be put forward during this
process.
Separately, Member States will also need to
consider the CCCTB proposals which we expect
to be released in Summer/Autumn 2016.
Unilateral actions by governments
Some governments may also take unilateral
action that goes beyond OECD and EU measures.
For example, Diverted Profits Tax has been
introduced in the UK, while Australia has enacted
a Multinational Anti-Avoidance Law. Legislation in
Mexico and France has also included several BEPS-
related changes, including new restrictions on the
deduction of financing costs.
A G U I D E T O G L O B A L T A X R E F O R M 7 3
WH
O IS IM
PACTED
BY G
LOBA
L TAX
REFORM
PROPO
SALS?
WHY? HOW?
Exchange of information
Exchange of information obligations will arise
from various proposals being put forward by the
OECD, EU and the US. Dealing with the practical
implementation of increased automatic exchange
of information is going to have significant resource
implications for tax authorities globally.
• Collating the data to be exchanged with global
counterparts;
• Analysing the data received and risk assessing
taxpayers;
• Carrying out audits and checks on taxpayers;
• Dealing with the likely increased demand from
companies for Advance Pricing Agreements;
and
• Dealing with an inevitable increase in tax
disputes and Mutual Agreement Procedures
(MAPs) between tax administrations.
The role of the competent authority will therefore
take on even greater importance, particularly
as countries commit to mandatory binding
arbitration.
Tax authorities will need to ensure that they are
adequately equipped to deal with this remit in
terms of wider skill-sets and more robust systems.
Dealing with taxpayer confidentiality
There are increasing calls for rules on the
confidentiality of taxpayer a�airs to be changed
as part of the transparency agenda. Tax
authorities may have to deal with increasing
scrutiny of taxpayer a�airs (including rulings,
settlements etc.) by NGOs, the media, the public,
national parliaments, EU committees and so forth.
A G U I D E T O G L O B A L T A X R E F O R M7 4
TAX ADMINISTRATIONS /REVENUE AUTHORITIES
SO WHO IS IMPACTED BY GLOBAL TAX REFORM PROPOSALS?
WHY? HOW?
Advising on new rules and monitoring global implementation of BEPS on behalf of clients
Advisers will be monitoring the detailed
implementation of the new rules across the world,
to assess the impact of the changes on clients in
di�erent sectors. They will be working closely with
their clients to identify the risk areas and advise
on the appropriate actions to be taken to ensure
that clients are compliant with the new rules.
The new rules will have an impact on clients’
global operations and this will lead to increased
interaction between advisor teams across
multiple jurisdictions.
Working as important stakeholders with global and national policymakers
Advisers across the world will be engaging
constructively with the OECD, EU and national
governments; the common aim is to ensure that
the new tax rules are implemented e�ectively and
in a way that reduces business uncertainty and
compliance cost.
Dispute resolution
Given the expected increase in tax controversy
and audits, advisers will have a key role to play
in the dispute resolution process. This will mean
increased interaction with both local and global
tax administrations.
A G U I D E T O G L O B A L T A X R E F O R M 7 5
TAX ADVISERS GLOBALLY
WH
O IS IM
PACTED
BY G
LOBA
L TAX
REFORM
PROPO
SALS?
SO WHO IS IMPACTED BY GLOBAL TAX REFORM PROPOSALS?
WHY? HOW?
The wider tax debate
The tax reform agenda has now reached political
levels and we have seen various countries
establish specialist committees to further
investigate the matter. Some examples are as
follows:
• The Irish government established the Joint
Oireachtas Committee on Global Taxation in
2013.
• The Public Accounts Committee in the UK
has held various hearings on multinationals’
corporate tax strategies at which corporates,
advisers and HMRC have all appeared.
• The US has held hearings across a number of
forums including the Committee on Ways and
Means and the Senate Finance Committee.
• In February 2015, the European Parliament
established a ‘Special Committee on Tax
Rulings’ (TAXE Committee) to investigate
tax rulings provided by Member States. In
December 2015, it was announced that the
mandate of the Committee would be extended
for another 6 months (following the extension,
the Committee are often referred to as TAXE2).
There has been increased media reporting and
commentary on the tax affairs of corporates
and tax is increasingly becoming a front page
story. The increased transparency requirements
for multinationals are likely to result in further
scrutiny from political and media stakeholders.
http://www.oecd.org/ctp/newchairoftheoecdscommitteeonfiscala�airselected.htm
http://www.oecd.org/about/whodoeswhat/
A G U I D E T O G L O B A L T A X R E F O R M7 6
POLITICAL STAKEHOLDERS AND MEDIA
“There has
been increased media reporting
and commentary on the tax a�airs of corporates.
”
SO WHO IS IMPACTED BY GLOBAL TAX REFORM PROPOSALS?
7 7A G U I D E T O G L O B A L T A X R E F O R M
A G U I D E T O G L O B A L T A X R E F O R M7 8
OECDOECD stands for Organisation for Economic Co-operation and Develop-
ment. The OECD consists of 34 member countries and these are listed in
the OECD chapter.
Base Erosion and Profit Shifting (BEPS): “Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies
that exploit gaps and mismatches in tax rules to artificially shift profits to
low or no-tax locations where there is little or no economic activity, resulting
in little or no overall corporate tax being paid”
Other key OECD BEPS terms
Country-by-Country reporting (CbCR) CbCR is a proposal put forward by the OECD and the EU
which requires multinational companies with a turnover of €750m or more to provide the relevant
tax authority with information for each jurisdiction in which the multinational operates. The
information to be provided in the CbCR consists of the amount of revenue, profit (or loss) before
income tax, income tax paid, income tax accrued, stated capital, accumulated earnings, number
of employees, and tangible assets. The CbC Reports are subject to exchange between tax
authorities (subject to the necessary CbCR/exchange of information provisions being in place).
The European Commission is currently carrying out an impact assessment to determine whether
the CbC Reports should be made public and the results of this assessment are expected to be
revealed in April.
CFC (Controlled Foreign Corporation) rules CFC rules are anti-avoidance rules. Their aim is to
attribute income earned by CFCs to the controlling company in the home jurisdiction.
Hybrid mismatches Hybrid mismatches are arrangements involving certain types of instruments
or entities which are treated di�erently for tax purposes across jurisdictions.
Patent Box A patent box (also referred to as an innovation / IP box) is a tax regime which provides
a preferential rate of corporation tax for income generated from the commercialisation of patents
or other intangibles.
Modified Nexus The modified nexus approach was developed by the OECD to link income
qualifying for preferential low tax in IP “boxes”, with the underlying R&D activities that generate
that IP. Under the modified nexus approach, R&D activities act as a proxy for substance.
Multilateral Competent Authority Agreement (“MCAA”) This is a multilateral agreement developed
by the OECD which enables tax authorities to automatically exchange certain based information.
Recently a MCAA has been signed by 31 states to enable the exchange of Country-by-Country Reports.
OECD Committee on Fiscal A�airs The Committee is the leading global body for setting
international standards for tax and oversees the creation and maintenance of publications
such as the OECD Model Tax Convention, which forms the basis for more than 3 000 bilateral
tax treaties, the Transfer Pricing Guidelines and regular publications such as Revenue Statistics
and Taxing Wages, which assist governments in reforming their taxes .
SOME KEY TERMS
7 9A G U I D E T O G L O B A L T A X R E F O R M
Key EU terms
Anti-Tax Avoidance Package (“ATAP”) The ATAP was released by the
European Commission in January as part of their overall approach to the
corporate tax avoidance agenda. The package is made up of 4 primary
initiatives;
• Anti-Tax Avoidance Directive to strengthen anti-tax avoidance
measures
• Amendment to the Directive on Administrative Cooperation to
implement Country-by-Country Reporting
• Recommendation on Tax Treaties
• Communication on External Strategy for E�ective Taxation
State Aid State aid is defined by the European Commission as an
advantage in any form whatsoever conferred on a selective basis to
undertakings by national public authorities. From a tax perspective, state
aid can arise where preferential tax rulings / reliefs are granted to certain
companies by tax authorities.
The DACs - Directive on Administrative Cooperation The DAC is an
EU Directive adopted by Member States which lays down the rules and
procedures under which the Member States shall cooperate with each
other with a view to exchanging information. In December 2015, the
DAC was extended to provide for the automatic exchange of tax rulings
and APAs between tax authorities (this is known as DAC 3). The DAC
also provides for the exchange of certain financial and non-financial
information on non-residents.
In December 2015, the DAC was extended to provide for the automatic exchange of tax rulings and APAs between tax authorities
A G U I D E T O G L O B A L T A X R E F O R M8 0
Key Transfer pricing terms
Transfer Pricing: Transfer pricing is a set of tax rules governing the way
companies in a group set prices for the goods and services transacted
between them, in the absence of a 3rd party price. Transfer Pricing rules
ensure that the prices set for such related-party transactions are ‘arm’s
length’.
Advance Pricing Agreement (“APA”): An APA is an agreement
between a tax authority and a multinational company governing the
transfer pricing of transactions between related parties.
Mutual Agreement Procedure (“MAP”): A MAP is a process by which
competent authorities from two or more countries seek to resolve
issues of double taxation which may arise for a taxpayer.
Arm’s length principle: Under the Arm’s length principle, the price of
a transaction between related parties must be at arm’s length i.e. it
must be consistent with the price that would have been set between
independent parties under the same circumstances.
Competent Authority: The Competent Authority is the representative
in each jurisdiction responsible for implementing the provisions of tax
treaties and resolving disputes through Mutual Agreement Procedures
(below). In most jurisdictions, the competent authority will be the tax
authority.
Local File: This is one element of the three-tiered approach to transfer
pricing documentation as put forward by the OECD. The local file
contains information about how the intra-group transactions of an
individual entity conform to the arm’s length standard. It is proposed
that the local file would be submitted to the entities local tax authority.
Master File: This is another element of the three-tiered approach
to transfer pricing documentation as put forward by the OECD. The
master file contains information about how the entire multinational
operates and its key intra-group transactions. There is only one master
file per group and it is proposed that this would be submitted by each
group entity to their local tax authority.
Transfer pricing is a set of tax rules governing the way companies in a group set prices for
the goods and services transacted between
them, in the absence of a 3rd party price.
8 1A G U I D E T O G L O B A L T A X R E F O R M
The multi-lateral Instrument will avoid the need for countries to individually re-negotiate the 3,000+ tax treaties currently in existence.
Key tax treaty terms
Tax Treaties: Tax Treaties are bi-lateral agreements entered into
between two countries to ensure that income and capital is not subject
to tax in both countries, leading to double taxation. Currently, there are
over 3,000 treaties in place worldwide.
Double Taxation: Double taxation arises when the same item of income
or capital is taxed on the same taxpayer in two or more jurisdictions.
Permanent Establishment: A permanent establishment (“PE”) refers to
a situation in which a company’s business activities in another country
give rise to a taxable presence in that country. Typically, the operation
of a fixed place of business or the conclusion of contracts in a territory
would create a PE there.
Multi-lateral Instrument: The multi-lateral Instrument is an instrument
being developed by the OECD that countries can use to implement
treaty-based BEPS Actions across their treaty network. The multi-lateral
Instrument will avoid the need for countries to individually re-negotiate
the 3,000+ tax treaties currently in existence.
“Tax Treaties are bi-lateral agreements entered into between two countries to ensure that income and capital is not subject to tax in both countries, leading to double taxation. Currently, there are over 3,000 treaties in place worldwide.”
A G U I D E T O G L O B A L T A X R E F O R M8 2
1. International Labour Organisation
2. PwC report on global top 100 companies by market capitalisation, March 2015
3. AmCham Europe, The Case for Invest in Europe 2015
4. AmCham Europe, The Case for Invest in Europe 2015
The Irish Tax Institute is the leading representative and
educational body for AITI Chartered Tax Advisers (CTAs) in
Ireland. It is the only professional body exclusively dedicated
to tax. Our 5,000 CTA members are part of the 28,000 CTA
network globally and they provide tax expertise to thousands
of businesses, multinationals and individuals in Ireland and
internationally. In addition, many hold senior roles within global
companies, Government, Revenue and state bodies.
The Institute is the leading provider of tax qualifications in
Ireland, educating the finest minds in tax and business. Our AITI
Chartered Tax Adviser (CTA) qualification is the gold standard in
tax and the international mark of excellence in tax advice.
A respected body on tax policy and administration,
the Institute engages at the most senior levels across
Government, business and state organisations. Representing
the views and expertise of its members, it plays an important
role in the fiscal and tax administrative discussions and
decisions in Ireland, the EU and internationally
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